For the first time since December 2009, we decided not to create our annual newsletter.
Leasing activity surpassed all other years but…
…there are some concerns with the integrity of the data. In 2022, data centers had significant issues with the utilities(not just in Northern Virginia) delivering power. Some leases that were signed may be contingent upon a utility getting power to a property by a certain date. Transformers at the substation continue to be at least a 2 year lead time. In addition, Meta has been working on cancelling recently signed leases. Instead of publishing this newsletter now, please check back here in a few months to see if we decided to release this at a later date.
Rising interest rates led to limited number of sales.
The capital markets also were in disarray with rising interest rates. As a result, cap. rates increased by 150 -180 basis points from March to December. The number of properties that sold were 2/3rd less than 2021. Many of the data centers that sold during 2022 occurred during the first 5 months. That being said NADC completed over $500MM during the past 12 months.
2023 will continue to face supply chain issues related to availability of power. In many markets developers will need to work much harder at securing land well in advance (3 years) of needing it and should pursue cover land plays while waiting for utilities to get the power to the site.
Land adjacent to high voltage electrical lines will command a premium price. 100-acre parcels or more with options to add additional land will be desired. Having room to adding a substation to the site with a way to get to a gigawatt will be the new focus to meet the demands of the hyperscale companies that are leasing 70 plus megawatts.
Rental rates and escalations have increased and that will continue in 2023. Strong demand, rising costs and limited supply are the primary drivers. In most markets, renewals will favor landlords. Tenants should focus on escalations tied to the Consumer Price Index.